in this mode, Emacs run an inferior shell, with I/O through buffer (default to *shell*). The shell buffer is a normal buffer, so you can edit and move around as usual, plus you have special keys to interact with the shell, like [M-p] to call the previous history command or [C-c r] to go to the beginning of the last output (see all keys in the menu).

See also: shell-here to open up a shell in the current directory; shell-pop to pop up and pop out a shell buffer window easily (both installable via ELPA).